Life Insurance for Parents (and How to Apply)

You’re probably here because you’re wondering, “Can I buy life insurance for my parents?” Often, there’s a need for parents to have life insurance and they just haven’t taken the steps to look at life insurance quotes online and make a purchase. They’re not alone. Let’s learn how to get the best life insurance for parents.

Putting off purchasing life insurance happens all the time. Parents will tell us:

• I need to talk to my spouse or partner
• My budget won’t allow the purchase
• I just haven’t gotten around to it
• I don’t like to think about dying

You may be wondering if you can buy life insurance for your parents and help them take care of that need. The answer is: YES, you can.

Before we go in-depth on this, feel free to type your ZIP code into our free and helpful tool above to find life insurance rates for parents in your area.

Why is life insurance for parents important?

Consider the following statistics:

1. Most Americans believe in a need for life insurance.

Nearly 9 in 10 consumers (86 percent) agree that most people need life insurance. -LIMRA, Insurance Barometer Study

2. A gap exists between the financial needs of many Americans and how much life insurance they own – if any.

Two-thirds of Americans recognize they need life insurance, yet many do not have adequate coverage to protect their families.  -LIMRA, Insurance Barometer Study

Understanding a need and taking action on that need are two entirely different things. Besides, understanding what type of life insurance you need and purchasing life insurance is about as fun as watching paint dry.

Totally understandable. Yet, securing life insurance is more affordable and straightforward than you think, and that peace of mind is priceless.

Here’s the truth – If someone would suffer financially should their parents die (including wrongful death, says Silver Law Offices), even an adult child, they need life insurance. A death in the family can completely change your financial situation and that’s something that most people are not prepared for.

What do I need to know when buying life insurance for my dad or mom?

To begin, let’s focus on the seven essential facts you need to know about purchasing life insurance for your parents.

1. Do your parents agree to be covered?

In order to purchase life insurance for a parent, or on anyone for that matter, you must have consent.

It’s always necessary for your parent to agree to the life insurance policy. Think of consent as a way for life insurance carriers to protect against bad intentions someone might have.

Let’s move on to answer the question “can you get a policy for parents without their consent?”

Can I buy life insurance for my parents without consent?

Can I get life insurance for my mom without her knowing? Can I get life insurance for my dad without him knowing? In a word, no.

Just search online for, “foul play for life insurance” and you’ll see plenty of examples as to why consent is crucial. Dark, I know, but we are all aware that not everyone has good intentions.

Consent is always required.

*Note – an exception to this rule is if a parent is purchasing a life insurance policy on a minor child.

Key takeaway – In almost all cases, it’s considered unethical for a person to have life insurance taken out on them without their knowledge. Consent provides a safeguard and consent is required.

2. Can you prove that there is insurable interest?

Every state in the U.S. has insurable interest laws to protect the integrity of life insurance policies.

These generally state that the only people who can take out or hold an insurance policy on the life of another person are blood or legal relatives or those with a financial interest in the survival of the policy’s subject. 

Here’s an example: Your mom is 72 and lives off her income from a small pension and social security.

She provides full-time childcare for your children. She doesn’t have a large amount of debt but has not saved up for funeral expenses or future medical bills that may occur.

Purchasing a modest policy (around $200,000) would likely make sense and would demonstrate an insurable interest.

Key takeaway – If you purchase a life insurance policy on someone (like your parent), you need to have an interest in their survival. Likewise, a financial burden would occur if they were to die.

3. What would be an appropriate coverage amount?

Deciding on an amount of life insurance to purchase for your parent requires you to consider some important factors:

• Income
• Debt
• Mortgage
• Other expenses (i.e. medical bills)
• Funeral expenses

Let’s consider some examples of appropriate life insurance amounts:

Case Study #1

Your dad is 68 and owns his house. He lives off his firefighter pension. He carries a moderate amount of debt from the collectible cars he works on.

Your dad provides childcare for your family and helps around your house regularly. You decide to purchase a policy for $250,000 to cover debts, funeral expenses, and the financial loss you would incur in finding other childcare.

Case Study #2

Your mom is 78 and rents an apartment. She lives off of a modest social security payment. She does not carry debt.

However, your mom has not saved up money for final expenses. You decide to purchase a policy for $50,000 to cover her final medical bills and funeral expenses.

Case Study #3

Your mom is 62 and carries a mortgage of $300,000. She recently retired and lives off a pension and social security. In addition to her mortgage, she carries debt from her car, credit cards, and medical bills.

She does not have money in savings or investments. Your mom provides childcare for you three days a week.

You decide to purchase a $600,000 policy for her to pay for all debts and final expenses and to provide for future childcare needs.

Key takeaway – Life insurance carriers require you purchase an appropriate amount of coverage for your parent’s situation. Too much raises a red flag. Too little won’t provide the type of financial protection you need.

4. Who will have ownership of the policy?

The person (or sometimes entity) holding the rights to the life insurance contract. Ownership is important because he or she can make changes to the life insurance policy, such as:

• Beneficiary change
• Transfer of ownership
• Lowering the death benefit
• Adding or deleting riders
• Request a rating change for the insured

Important – While ownership of a policy may change, the insured may not change.

If the owner of the policy is also the insured, life insurance carriers will not ask clarifying questions.

If you are merely assisting your parent in securing life insurance, and they will own and make payments for the policy, this is a straightforward situation without the need for further considerations.

On the other hand, if you will be the owner of your parent’s life insurance policy, life insurance carriers will require you to provide proof of insurable interest.

In other words, you will need to demonstrate that you will experience a financial loss in the event of your parent dying. This is usually easy to do when you consider things like credit card debt, end-of-life expenses, child care costs, and other things like this that would impact your standard of living or financial situation.

Key takeaway – Ownership of the policy is straightforward if it will be owned and paid for by the insured: your parent. If you will be the owner of your parent’s life insurance policy, it’s crucial that it’s properly set up to protect you financially and insurable interest is established.

5. Who will be the payor?

The payor of a life insurance policy is who will be making the premium payments. The payor owns the contract and is often the insured of the life insurance policy. However, that’s not always the case. If you are purchasing a policy for a parent, for example, you are the payor and your parent is the insured.

Key takeaway – The individual or entity making the premium payments is the payor. The payor is considered the owner of the contract.

6. Who will be the beneficiary?

The beneficiary is the person(s), organization, school, church, or business receiving the death benefit from the life insurance policy. Beneficiaries are usually loved ones, typically a spouse, who would experience a financial burden if the insured passed away. A lot of people choose to have their death benefit used to help cover their funeral arrangements, burial expenses, medical expenses, or similar things. It can also be used to establish trusts, cover continued living expenses if a mother or father still has a child to care for, leave an inheritance, and more. It all depends on the personal situation and financial resources that their loved ones will be left to deal with.

The policy owner will also have the ability to consider their payouts in another way. Will the money be delivered over a period of several years or months? Or, will they leave any heirs or dependents a lump sum of money?

But really, the sky’s the limit when choosing a life insurance beneficiary. In fact, your parents could list their beloved dog as a beneficiary if they wanted to.

Often, the life insurance beneficiary is:

• Spouse
• Child or children
• Small business
• School
• Church

When your parent is considering who to list as a beneficiary, these questions help:

• Who does your parent want to help financially?
• Would a person or a trust make more sense?
• What are the beneficiaries’ circumstances and would they benefit from life insurance proceeds?
• Is there a contingent beneficiary?
• Are any of the beneficiaries minors?
• Does my will match up with the life insurance policy proceeds?
• Will I use this life insurance payout to cover any estate taxes?
• Do I have any outstanding debt that should be covered with this money?

Key takeaway – Carefully choosing a beneficiary prevents future policy headaches. Be sure to work with an expert agent to guide you through the process.

7. What type of coverage is needed?

People buy life insurance for their parents all the time.

If your parents agree to the policy, it’s legal and can be a smart investment in your family’s future. You do, however, need to set the policy up carefully to avoid tax implications.

To review, here are the four main parties to a life insurance contract:

Owner

The person (or sometimes entity) that holds all the rights to the life insurance policy. The owner is who can make changes to the policy. They are ultimately responsible for the purchase of the contract.

Insured

The person whose life is insured by the policy. Often, the owner and the insured are the same people. If the owner is not the insured, life insurance companies will ask for you to demonstrate an insurable interest (see #2).

Beneficiary

The person(s) who will receive the death benefit upon the death of the insured. In the case of your parent, the beneficiary is often the child (or children) of the parent.

Insurer

The life insurance carrier that is providing the life insurance contract.

WARNING – It’s crucial that the policy is set up appropriately. There is the possibility of falling into a tax trap if your parent’s life insurance policy is not handled carefully.

Life insurance proceeds are usually tax-free, except when the owner, insured and beneficiary are three different people.

This is known as the Goodman Triangle.

An example of how the Goodman Triangle can happen

• A son owns a life insurance policy on his mom. The son’s daughter is named as the beneficiary. For tax purposes, the policy proceeds are viewed as a gift to his daughter and would be taxed accordingly. The son would be taxed on the “gift” he provided his daughter.

How to avoid the Goodman Triangle

• In most cases, it can be avoided by having two “points of the triangle” be the same person.
  • In the example above, if the son’s mom was both the owner and the insured of the policy, there would no Goodman Triangle.

Key Takeaway – Use caution when setting up your policy and understand how to avoid the Goodman Triangle. Don’t have the owner, insured and beneficiary be three different people.

Applying for Life Insurance for Parents: How should I get started?

Yes, you can purchase life insurance for your parents or any other consenting adults. This policy can be applied to cover things like final costs, medical bills, or estate taxes after they pass away.

The most important first step to take is to collaborate with an independent life insurance agent.

An independent agent represents multiple carriers to provide multiple life insurance quotes.

Your best interests are at heart, and you are not held captive to a particular life insurance carrier. That way, your parents will receive the highest quality policy at the most competitive price they qualify for.

Get a start on finding life insurance for your parent by typing your ZIP code into our free and helpful tool below to find affordable life insurance quotes for parents in your area.